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ANALYSIS OF THE FINANCIAL SITUATION
60
A N A L Y S I S O F T H E
F I N A N C I A L S I T U A T I O N
CONTINUED IMPROVEMENT IN OPERATING PROFIT.
DaimlerChrysler further improved its profitability in 1999
and achieved an operating profit of €11.0 billion. This repre-
sents an increase of 28% over the previous year’s figure of
€8.6 billion. After adjusting for certain one-time items af-
fecting both financial years, which will be described hereun-
der, operating profit improved by 20% to €10.3 billion,
meaning that operating profit increased at a much higher
rate than revenues. It was particularly encouraging that all
divisions again achieved higher operating profits – in some
cases substantially higher. The improvement in operating
profit was also the result of synergies achieved in the first
year after the business combination, primarily due to cost
savings in procurement and supply, and the sales organiza-
tion. In the segment Other we fully consolidated Adtranz
for the first time due to our acquisition of the remaining
50% stake from ABB. Operating improvements at Adtranz
were partially offset by further burdens from the restructur-
ing measures initiated during the year.
With a total of €5.1 billion (1998: €4.3 billion) in 1999 the
biggest contribution to operating profit again came from the
segment Chrysler Group. The significant increase over the
previous year’s result was mainly due to higher unit sales
and improved product mix, with the market success of the
Jeep Grand Cherokee, Dodge Durango and the full-size se-
dans being particularly important. Increases in vehicle pric-
ing, partially offset by higher sales incentives for certain
models, also contributed to the improvement in operating
profit. The depreciation of the euro had an additional posi-
tive effect on the translation of the Chrysler Group’s US dol-
lar profits into euros. On the other hand, negative effects
arose from the difficult economic situations in Asia and
South America. Furthermore, the results include a €139
million charge for lump-sum retiree payments related to the
collective bargaining agreement reached with the United
Auto Workers labor union (UAW) in the US in September
1999.
The Mercedes-Benz Passenger Cars & smart division
achieved an operating profit of €2.7 billion – a substantial
increase of 36%. Important factors behind this rise were the
increased volumes of the new S-Class, the A-Class and the
M-Class. For life-cycle reasons, sales of the C-Class and E-
Class were below the levels of the previous year. Shipments
of the E-Class, however, gained momentum again after the
introduction of the face-lifted model in the middle of the
year. Higher output figures for the M-Class became possible
after additional production facilities came on line in Graz,
where the M-Class has been produced since spring 1999. As
additional expenditures were necessary for the smart, par-
ticularly in the first half of the year, for the purpose of prod-
uct modifications and in order to achieve better market posi-
tioning, its contribution to operating profit was again
negative, despite a significant sales recovery since spring
1999.
The operating profit attained by the Commercial Vehicles di-
vision rose by 13% to €1,067 million in the 1999 financial
year (1998: €946 million). Major contributions to this in-
crease came from the dynamic development of the commer-
cial vehicle business in the NAFTA region and the continu-
ing market success of our vans in the European markets. In
North America, the vehicles of the new truck brand, Ster-
ling, and the school bus manufacturer, Thomas Built Buses,
were available for the entire year for the first time. The diffi-
cult economic situations in South America and Turkey had a
negative impact on our business, however.
■Sustained improvement in profitability
■Operating profit increased 28% to €11.0 billion
■Net income reached €5.7 billion (plus 19%)
■Return on net assets significantly above cost of capital at 13.2% (1998: 12.7%)
■Industrial business presented separately for the first time